The UK housing market is predicted to see a drop of 2-4% in average property prices over 2024, according to new forecasts from Halifax, the country’s largest mortgage lender. However, Halifax expects the market to begin recovering later in the year as interest rates and mortgage rates fall from their current high levels.
The decline in prices will be driven by the ongoing impacts of high interest rates on mortgage affordability and the number of housing transactions, Halifax stated. Rates for a typical 5-year fixed mortgage peaked at 5.7% in July 2022 but have since dropped below 5%. Financial markets are now predicting further cuts to the Bank of England’s base rate in 2024 from its current 5.25%.
As mortgage rates decrease, Halifax believes the housing market should stabilize and rebound slightly. Other forecasts support this view – Nationwide, the UK’s biggest building society, predicts a “low single digit decline” in prices next year but says they could also remain “broadly flat.
Resilient Prices in 2022 But Masked Market Fluctuations
Halifax noted that house prices held up better than expected in 2022, falling just 1% to an average of £283,615. However, this yearly figure hides the volatility seen – prices declined for 6 straight months between April and September before rising again later in the year.
Kim Kinnaird, Halifax Mortgages Director, stated: “To some extent, this masks the fluctuations we’ve seen in the housing market throughout 2023. As wider economic headwinds began to bite, house prices fell for six consecutive months between April and September, before rising again later in the year as prospects improved.”
The current average price remains 3% below the peak of £293,025 seen last summer. But it is still around £44,000 higher than pre-pandemic levels.
Lack of Homes for Sale Providing Some Support
Halifax believes the smaller-than-expected decline in 2022 prices has been driven more by limited supply than strong demand. The number of competitive mortgage deals fell significantly, leading to a 25% drop in approvals. Overall housing transactions were also down 20% – the lowest levels seen in over a decade.
With fewer homes coming to market, prices have not dropped as quickly as might be expected given pressure on affordability. But buyer demand still remains historically weak due to economic uncertainty and high borrowing costs.
Regional Variations Across the UK
On a regional basis, the housing market is showing divergence across the UK. Areas like the South East saw larger price declines of 5.7% in 2022. Meanwhile, Northern Ireland bucked the downward trend with a 2.3% increase over the year.
Robert Gardner, Nationwide’s Chief Economist, summed up the outlook: “A rapid rebound in activity or house prices in 2024 appears unlikely.” But the expected cuts in interest rates could lay the foundations for a recovery later in the year or into 2025.
Ongoing Affordability Issues in 2023 But Mortgage Rates Now Falling
Halifax cautioned that various headwinds will keep pressure on the market this year. Cost of living challenges and higher borrowing costs relative to 2021 will contribute to further “mild downward pressure” on prices.
However, recent inflation drops and predictions of base rate cuts are already feeding through to lower mortgage deals. Rates are expected to decrease further over the coming months as the Bank of England potentially reverses some of last year’s hikes.
This should slowly improve affordability and stabilize the market – although a rapid bounce back seems improbable. Careful optimism alongside continued economic vigilance seems warranted for 2024 and beyond.